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Post by scoobydoo on May 8, 2016 20:55:32 GMT
scoobydoo Do you have anything meaningful to add other than my spelling? I'm just asking what you meant by your 'cite' comment.
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cooling_dude
Bye Bye's for the PPI
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Post by cooling_dude on May 8, 2016 20:56:11 GMT
People... calm down. I could see this post getting out of hand. earthbound; simply ignore this post if you don't like the subject, and repeat in the future  |
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Post by earthbound on May 8, 2016 21:01:41 GMT
Hi dude... honest.. i am perfectly calm, to be honest its purely, for me, about the negative rhetoric on the SS threads, there is no need. |
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mikes1531
Member of DD Central
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Post by mikes1531 on May 8, 2016 21:04:10 GMT
... i cannot see why posters keep posting predictions of future losses. To see what others think about their assumptions, analysis, and results. We all have to decide what we're willing to invest in a platform. An analysis of possible default scenarios might suggest that that large losses would result from small default assumptions, or it might suggest that small losses would result from large default assumptions. Depending on those results, people might have a better idea whether or not they feel comfortable with a given level of investment in the platform.
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littleoldlady
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Post by littleoldlady on May 8, 2016 21:22:31 GMT
My OP was certainly NOT to predict how much, if anything, investors might lose. Prediction is too difficult, (especially about the future ). No, my aim was to calculate the net return of interest minus losses in various loss scenarios. In other words how sensitive net return is to the level of losses. I think it is interesting to see, for example, what level of defaults (given the assumptions) would completely wipe out the interest, what level would reduce net return by a half to 6% etc. Then it is up to individual lenders to decide on the probability of having that level of defaults. Without such an analysis lenders are assuming that there will never be a default, or if there is it will be covered by the PF, or simply hoping that the defaults will be covered by interest earned without any analytics to support that assumption. For example I find it reassuring that a portfolio of a mixture of 6 month and 12 month loans of which 10% defaulted losing 50% of capital would still return a net 5.9% subject to the assumptions. This gives me a feel for the level of risk that my investment is subject to that I otherwise would not have, and gives me a degree of confidence in my exposure to the platform. |
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Post by earthbound on May 8, 2016 22:53:56 GMT
... i cannot see why posters keep posting predictions of future losses. To see what others think about their assumptions, analysis, and results. We all have to decide what we're willing to invest in a platform. An analysis of possible default scenarios might suggest that that large losses would result from small default assumptions, or it might suggest that small losses would result from large default assumptions. Depending on those results, people might have a better idea whether or not they feel comfortable with a given level of investment in the platform.
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littleoldlady
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Post by littleoldlady on May 9, 2016 20:57:06 GMT
If you insure your house against fire you have to estimate the cost of rebuilding. This does not mean that your house has already caught fire or that you expect it to, it just means that you are preparing for that eventuality.
I am frankly disappointed that most comments have been negative in this vein - that it is somehow improper to speculate about future losses. Anyone with this opinion can just ignore the thread. Nobody has challenged my figures or suggested any improvement to the analysis.
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Post by eascogo on May 9, 2016 21:18:06 GMT
If you insure your house against fire you have to estimate the cost of rebuilding. This does not mean that your house has already caught fire or that you expect it to, it just means that you are preparing for that eventuality. I am frankly disappointed that most comments have been negative in this vein - that it is somehow improper to speculate about future losses. Anyone with this opinion can just ignore the thread. Nobody has challenged my figures or suggested any improvement to the analysis. I was surprised too that only one or two contributors voiced their approval of your efforts to work out estimated losses. Of course the assumption of 50% recovery for the half of loans defaulting is just hypothetical but there is no way to estimate what the real situation would look like if the market goes pear-shaped. Personally I welcome your attempt.
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Post by earthbound on May 9, 2016 22:15:34 GMT
If you insure your house against fire you have to estimate the cost of rebuilding. This does not mean that your house has already caught fire or that you expect it to, it just means that you are preparing for that eventuality. I am frankly disappointed that most comments have been negative in this vein - that it is somehow improper to speculate about future losses. Anyone with this opinion can just ignore the thread. Nobody has challenged my figures or suggested any improvement to the analysis. sorry if my post's were a bit negative ,they were not aimed at you.. they were aimed at the intent of your post, maybe right, maybe wrong, the title of the thread does not instil any kind of confidence, i am not a rich person, i invest my hard earned savings in SS. FS and MT, and it doesn't do my confidence in those sites any good when all i read is predictions about how much i might/may/could/will lose. i apologise if i offended you in any way. (edit) i do have a tendency to talk before my brain is in gear. 
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mikes1531
Member of DD Central
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Post by mikes1531 on May 10, 2016 3:36:26 GMT
If you insure your house against fire you have to estimate the cost of rebuilding. This does not mean that your house has already caught fire or that you expect it to, it just means that you are preparing for that eventuality. I am frankly disappointed that most comments have been negative in this vein - that it is somehow improper to speculate about future losses. Anyone with this opinion can just ignore the thread. Nobody has challenged my figures or suggested any improvement to the analysis. sorry if my post's were a bit negative ,they were not aimed at you.. they were aimed at the intent of your post, maybe right, maybe wrong, the title of the thread does not instil any kind of confidence, i am not a rich person, i invest my hard earned savings in SS. FS and MT, and it doesn't do my confidence in those sites any good when all i read is predictions about how much i might/may/could/will lose. i apologise if i offended you in any way. (edit) i do have a tendency to talk before my brain is in gear. : Please don't let yourself fall into the trap of assuming that past investment performance is an accurate predictor of future performance. Just because SS haven't had any losses yet is not a good reason to assume that they never will have losses. Doesn't every start-up business begin with a spotless track record? A P2P platform that has a perfect record in the long term is, again IMHO, about as likely as a stock market -- or a property market -- that never goes down. IMHO, any SS investor who makes that assumption is going to be disappointed -- eventually. And eventually could come sooner rather than later -- such as in the aftermath of the June 23 vote.
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Post by jackpease on May 10, 2016 5:42:15 GMT
I think it is quite important to highlight the negative with SS - precisely because it has yet to be tested in the way that Assetz, FC, Rebs, FK etc have. SS is on an extended honeymoon.
Sometimes you get posters coming on and saying something along the lines of 'why would anyone choose Ratesetter at 5% when you can have SS at 12%' which really worries me - they clearly have no idea of the risks involved. As there are so few parts available on SS, they grab what they can (inevitably the least suitable loans otherwise they'd be gone in nanoseconds) and then are exposed and not diversified.
Then if it goes tits up - they say 'we didn't know there was a risk' - complain - make a big fuss - call for more regulation - which we *all* pay for whether or not we have exercised caution.
So it suits me just fine that people keep spelling out the negatives ie that SS carries quite large risks in the vein hope that new investors don't dump all their money in SS imagining its safe. For sure nobody ever reads the 'your capital is at risk' warnings.
Jack P
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Post by meledor on May 10, 2016 7:35:24 GMT
I think it is quite important to highlight the negative with SS - precisely because it has yet to be tested in the way that Assetz, FC, Rebs, FK etc have. SS is on an extended honeymoon. Sometimes you get posters coming on and saying something along the lines of 'why would anyone choose Ratesetter at 5% when you can have SS at 12%' which really worries me - they clearly have no idea of the risks involved. As there are so few parts available on SS, they grab what they can (inevitably the least suitable loans otherwise they'd be gone in nanoseconds) and then are exposed and not diversified. Then if it goes tits up - they say 'we didn't know there was a risk' - complain - make a big fuss - call for more regulation - which we *all* pay for whether or not we have exercised caution. So it suits me just fine that people keep spelling out the negatives ie that SS carries quite large risks in the vein hope that new investors don't dump all their money in SS imagining its safe. For sure nobody ever reads the 'your capital is at risk' warnings. Jack P
I am intrigued by the comment that SS has yet to be tested compared to others. SS is not some new upstart - it has written more business this year than Assetz and Thin Cats combined. Whilst I admit we cannot be conclusive at this stage, the fact that it hasn't experienced the level of defaults compared to others could suggest that its credit assessment processes are more robust.
As regards Ratesetter we also get posters saying 'SS is far too risky, stick with Ratesetter' which concerns me as I do not think people appreciate the risks with Ratesetter where I understand the majority of the book is unsecured consumer/sole trader loans. I think posters put too much confidence in the Provision Fund when in the sort of economic situation often applied to SS ( a scenario resulting in a 50% fall in property values) it would be wiped out. In other words lower rate does not necessarily mean lower risk, it could quite easily be underpriced.
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Post by GSV3MIaC on May 10, 2016 7:54:31 GMT
Back to the original post ..
I think there are a couple of issues - 'correlation' (as discussed by others) which means that if property prices fall, a LOT of the loans will be affected at once (and even more correlation when several of the loans are to the same person .. possible 'domino' effect'). e.g. if a certain university stopped admitting students (unlikely, I know), there'd be a serious impact on a couple of loans, iirc.
Also timing .. assuming 'all loans fail at 30 months, 50% recovery at 5 years' is a bit too simplistic I fear. Loans could potentially fail at 3 months, with the 50% recovery (which seems like a good figure) maybe 12-24 months later (see other platforms for examples). I think, as suggested, that a monte-carlo simulation (using random failure times, and percentages failing, and maybe recovery periods and percentages recovered) is going to give different answers (but likely not WILDLY different). The maths is hard, which is why simulation is just easier. It does rather all hinge on the assumptions. 8>.
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poppyland
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Post by poppyland on May 10, 2016 9:25:11 GMT
littleoldlady sorry if my post's were a bit negative ,they were not aimed at you.. they were aimed at the intent of your post, maybe right, maybe wrong, the title of the thread does not instil any kind of confidence, i am not a rich person, i invest my hard earned savings in SS. FS and MT, and it doesn't do my confidence in those sites any good when all i read is predictions about how much i might/may/could/will lose. i apologise if i offended you in any way. (edit) i do have a tendency to talk before my brain is in gear. Littleoldlady, I know exactly where you are coming from. I am not convinced that the doom and gloom forecasters are right. Like you, I invest pretty much all we have in SS, FS and MT, as well as some with House Crowd in a high-return capital investment project due to end in September. I am not expecting huge losses at any point, and would not be surprised to see no losses over the next year or so. I think SS are good at checking loans, and my only real concern is that in the long-run they may get more careless about their due diligence and may try to expand their business too rapidly. I will be watching out for this. I only invest in platforms where the money is secured on something solid, and like someone else commented on here, I have noticed that some of the lower interest rate platforms actually seem a lot more risky. I personally don't buy into the "if the interest rate is high it must be more risky" way of thinking. On the other hand, it's probably good that there are people on here who have been burnt on other platforms, who take a more pessimistic viewpoint, even if their posts don't make for very enjoyable reading. I think it is possible to be too optimistic, but also too pessimistic..
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littleoldlady
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Post by littleoldlady on May 10, 2016 9:29:16 GMT
Back to the original post .. I think there are a couple of issues - 'correlation' (as discussed by others) which means that if property prices fall, a LOT of the loans will be affected at once (and even more correlation when several of the loans are to the same person .. possible 'domino' effect'). e.g. if a certain university stopped admitting students (unlikely, I know), there'd be a serious impact on a couple of loans, iirc. Also timing .. assuming 'all loans fail at 30 months, 50% recovery at 5 years' is a bit too simplistic I fear. Loans could potentially fail at 3 months, with the 50% recovery (which seems like a good figure) maybe 12-24 months later (see other platforms for examples). I think, as suggested, that a monte-carlo simulation (using random failure times, and percentages failing, and maybe recovery periods and percentages recovered) is going to give different answers (but likely not WILDLY different). The maths is hard, which is why simulation is just easier. It does rather all hinge on the assumptions. 8>. That is just the sort of reply I was hoping for. My idea in the OP was only intended to get smarter people than me working on the problem. However I don't see how an SS loan could fail at 3 months (unless that was exceptionally the initial term) as interest is retained up front and there would normally be no indication that the borrower could not repay until the end of the term. My assumption that all loans failed at the same time is of course absurd in itself, but I thought that it would be a fair way of catering for the effect of failures on the net return. I do agree that correlation is a major issue, but I could not think of how to cater for it.
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